James Comey And KPMG: Isn't It Ironic

Washington DC is a small world and James Comey, President Obama's nominee to take over the FBI, circulates easily in it. But I doubt he knew he was getting this FBI gig when he took a board seat at HSBC in January.

How could he? Why would he?

Comey joined HSBC's newly formed Financial System Vulnerabilities Committee, after HSBC settled with the federal government for a long list of ugly criminal violations. According to the Department of Justice last December, HSBC “agreed to forfeit $1.256 billion and enter into a deferred prosecution agreement with the Justice Department for HSBC’s violations of the Bank Secrecy Act (BSA), the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA). In addition to forfeiting $1.256 billion as part of its deferred prosecution agreement (DPA) with the Department of Justice, HSBC has also agreed to pay $665 million in civil penalties – $500 million to the Office of the Comptroller of the Currency (OCC) and $165 million to the Federal Reserve – for its AML program violations.”

Comey was probably the right guy to help HSBC get out of this major hole and monitor compliance, on behalf of the board and shareholders, with the deferred prosecution agreement. But I can't imagine he would have taken this job knowing he would be thrust back into official crime fighting in less than six months.

There’s no way, for sure, he relished getting mixed up with HSBC auditor KPMG again. I can't imagine he would put himself in the position of working, as a member of the board, with Deloitte and PwC too, hired to help HSBC deal with the banks repetitive vulnerability to a financial system that occasionally requires its banks to follow the law about things like not laundering money for drug dealers and not trading with our enemies. After all, it's Deloitte who was accused of helping Standard Chartered, another KPMG audit client, dodge compliance with an enforcement order for bank secrecy and money laundering violations for doing business with Iran.

If Comey, and his boss Attorney General Alberto Gonzalez, had made a different decision about KPMG back in 2005, KPMG would not have been around to miss all the illegal acts HSBC and
Standard Chartered were committing on its watch. Bloomberg reported in 2007 that back in June of 2005, Comey was the man thrust into the position of deciding whether KPMG would live or die for its criminal tax shelter violations.

The talks with the government reached a turning point on June 13, 2005, when KPMG partners and lawyers met with the then-No. 2 official at the Justice Department, Deputy Attorney General James Comey, to appeal Kelley's decision to seek an indictment.

The firm was represented by a team that included [Robert] Bennett, new Chairman Timothy Flynn and Sven Erik Holmes, a former federal judge hired by the firm to be its top in-house lawyer.

“We cannot enter a plea,'' Bennett said, according to a memo. “We're not saying that in a macho way. We simply can't do it and survive.''

KPMG employed 20,000 people "whose lives will be destroyed,'' he said. "We're asking you to use a smart bomb, not a nuclear bomb.''

Comey, the article said, was “struck by the scope of the wrongdoing.'' He also expressed concern, according to
Bloomberg’s account, that audit firms after the
Andersen case might believe they were immune from prosecution.

He reportedly said at the time, “Does the notion of corporate criminal liability mean anything for the Big 4?''

About two weeks after meeting with Comey, the KPMG legal team met in New York with Kelley and his aides and got the good news: Comey and Gonzales decided against an indictment of the firm, the papers show.

Kelley would instead pursue a deferred prosecution agreement, meaning charges would be filed only if the firm failed to stay out of trouble for a specified period of time.

The two sides immediately began hammering out the details of the deal that would be announced at a Gonzales news conference on Aug. 29, 2005, at the Justice Department's Washington headquarters.

The resolution, Gonzales said, “reflects the reality that the conviction of an organization can affect innocent workers and others associated with the organization, and can even have an impact on the national economy.''

I have a pro-tip for Mr. Comey as he takes the job leading white- and blue-collar crime fighters at the FBI: Don’t waste any time on the Big Four public accounting firms. Your fears have been realized. The largest global public accounting firms are now, as a result of your decision, considered “too few to fail” by the Justice Department and SEC. The auditors have been very busy since 2005 missing new crimes at HSBC, Standard Chartered, JPMorgan, Barclays, MF Global, Deutsche Bank (KPMG), UBS, Colonial Bank, Taylor Bean & Whitaker…

Two-time finalist for Gerald Loeb Award - this year for Forbes magazine work and in 2010 for online commentary and blogging. I am a C.P.A. and freelance journalist with credits in the Financial Times, Boston Review, American Banker, Columbia Journalism Review, Accountancy Ag...